The will and the way

The IMF, for all its deficiencies, is fairly good at economic forecasts, perhaps if only in comparison to the financial news biz. So it is of concern to read this by Shamin Adam of Bloomberg:

Risks to the global economic outlook have “risen significantly” and policy makers have limited room to provide support to growth, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said.

Most advanced economies are experiencing a “subdued” recovery, Shinohara said in a speech in Singapore today. “A key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.” [emphasis added]

It’s the latter point that, back in 2008 when Paul Krugman was running around saying, “Spend money! On anything! The world as we know it is coming to an end!”, I pointed out to him that this was very unwise. True, the financial meltdown was extremely dangerous and may yet end in a Great Depression. Also true that preventing damage to the real economy requires spending money. But spending money on anything?

As a crisis progresses, sustaining a coherent plan of action requires political will. FDR was very careful to make sure that his programs did things that the public liked and did not see as wasteful. The bank bailouts, while necessary, were done in an extremely unpopular way, which is to say, were profitable to the shadow banks, while leaving the rest of the banking system in a bad way. But worse, the stimulus package did very little to create jobs. It’s very likely that a second major stimulus will be required and it’s very likely that the political will– as represented by the Senate– will not exist to administer it. It will all hinge on a very few races. As I write, I am pessimistic, since it looks as if Democrats offering sensible change are being defeated, while Republicans offering madness are winning. In California and Nevada, at least, Republican intensity looks high to me, with roughly equal turnout for Republican and Democratic candidates in California and higher turnout for Republicans in Nevada. We may find that at the moment we desperately need to have a national will for economic stimulus, there is no way for it to be done.

During the summer, we will learn just how bad the residual economic damage is. The markets provide some clues. Tonight, Asia is heading lower as of midnight, Eastern, and futures point to a directionless US open.

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This entry was posted on June 8, 2010 at 11:05 pm and is filed under economy, financial crisis, stock market.
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3 Responses to “The will and the way”

jo6pacsaid

Well things looked good in the off color white book and according to little benny the road is clear for recovery. It will be slow (think molasses in winter) but steady. I feel better already will back to digging trenchs for irrigation wire, I just wonder if I should be digging a moat instead.

Did you notice that the markets are not staying in the green, closing about where they closed on 6/7? This tells me that what was in the Beige Book was out yesterday afternoon, so people are selling on the news. Bernanke did make a statement ahead of the release, so maybe it wasn’t a leak per se. But it still represents market manipulation that only large investors are positioned to take advantage of.